Why foursquare will beat Groupon: Loyalty vs Acquisition

While Foursquare is a relatively new phenomenon, it automates and energizes the core of what loyalty programs are all about: promoting patronage.  Even though getting rid of punch and swipe cards may not seem like much, Foursquare and services like them are on their way to revolutionizing the loyalty business. Here is how:

1. Automates tracking and control of loyalty: no more punch cards while still enabling the merchant to set the behavioral targets (e.g. mayor gets to drink free, 10 check ins = free tasti-delight treat, first time check in gets a discount )
2. Makes patronage a game and encourages competition: apparently, some people need badges and are willing to work to get them
3. Creates value added content in the form of reviews: yelp reviews are a great start, but nothing beats a recommendation from a friend you know and trust
4. Value add with Key Partnerships: foursquare’s partnering with companies like American Express and Zagat to provides additional layer of benefits and customer based offers
5. Creates a deeper connection between the establishment and it’s patrons: Merchants and patrons can communicate with each other and generate buzz even outside of the physical location
6. Makes loyalty public: ever check in to a place with the hope a friend is nearby and will join you?

This is an especially powerful change to the loyalty experience and one that I believe will surpass Groupon in terms of value. Here is why:

1. Groupon encourages trial, not loyalty: Deep discounts are a great tool to get new traffic and many merchants consider it an advertising expense. But if you are a loyalty based business, all you are doing is undermining your price point and reducing profitability
2. Groupon attracts bargain hunters not loyalists: many merchants cant convince this tough and fickle crowd to come back at full price (the company claims 30% repeat business).
3. Sometimes adversarial relationship between Groupon and merchants: Groupon’s sales techniques and contract terms are grossly in favor of Groupon and have caused some question recently as to its payback (check out this link to an inspired review of the groupon merchant agreement http://blog.agrawals.org/2011/06/07/an-analysis-of-the-groupon-merchant-agreement/)

Don’t get me wrong, Groupon is a juggernaut in the daily deals space and there will always be a play for new business acquisition. But most long term business are based on repeat customers. In its current form, Groupon is actually damaging to customer loyalty at a time when foursquare shines.

In the next year or so, I believe many merchants will see the limitations of using Groupon and relegate it to a more limited customer acquisition budget. At the same time, merchants looking to drive loyalty will expand with foursquare or a similar service. The landscape will get even more lively as usage increases and Facebook flexes its check-in muscles in a more deliberate way.